Should you invest in real estate via assured rental returns scheme?

Though assured returns look like a win-win situation for the builder as well as the investor as it provides returns to investors and finance to builders. However, reality can be completely different. So, it becomes crucial for investors to consider various factors before getting into it. These schemes usually provide on an average 12 per cent assured returns on the investments made by the investors. Generally, these schemes open for commercial space and investors find it very attractive as the borrowing rate is 10 per cent and assured rental returns is 12 per cent. However, there are various risks that can affect such returns. Say for instance, due to low demand in real estate space the sales of the property may slow down which may create an inability on part of the builder to give you assured returns.

Due to this, it becomes a very risky proposition for investors. Even a law is proposed restricting such unregulated deposit schemes has been cleared by the Cabinet and is expected to be introduced in the parliament soon. This law would ensure that the practice of such assured rental returns scheme comes to an end in the real estate market. This law would aim to clamp down not only builders but also jewelers and other entities running such deposit schemes.

The builders run these schemes for getting finance as the returns that they assure to provide is way lower than the interest they need to pay to the banks or NBFCs. Though this kind of funding is welcomed globally, it needs to be regulated to avoid any sort of misrepresentation and misconduct from the builders or any such entity engaging in such scheme. There must be ratings provided to such schemes by rating agencies which would further create a win-win situation for the builder as well as the investor. As builders who have high rating can get loans cheaper and investors also can be assured about the returns provided by such schemes. Though currently if you wish to invest in real estate via such schemes it is better to have a look at the risks involved such as construction risk, legal risk, financial risk and marketing risk.